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Volatile bonds likely to hit Morgan Stanley results

Morgan Stanley is expected to take a hit of $1.2bn (€905m) to $1.7bn on the bonds issued before the onset of the financial crisis when it reports quarterly results later this month because of the accounting treatment on some of the bonds, sources said.

The bonds, valued at nearly $29bn recently, surged as the Wall Street bank distanced itself from concerns last fall that it was in dire straits, forcing Morgan Stanley to raise the paper value of the bonds.

As the bank adjusts its marks on these bonds, as if they were being purchased back on the open market, the more expensive liability reflects in the bottom line, hurting earnings.

Analysts forecast a seven-cent per share loss, down from a $1.45-a-share gain a year earlier.